What’s Your Advice About Using Novation for Debt Elimination? – Melissa

“Hello Steve,

I’m doing some research on paying of debt and I came across your website. I’m hoping you can give me some sound advice.

I am 31 years old, single with $19K in unsecured credit card debt. I’m sure my story is just as sob as anyone elses, so I won’t bother sharing it. The bottom line is that I have finally decided to get my head out of the sand and pay off my credit card debt once and for all.

Aside from running up my cards in the first place, I’ve tried to be responsible in handling them as far as making the payments, etc. I have all my cards on autopay, and pay at least the minimum payment, on time, every month. My credit score currently is near 700 (698 from one reporting agency, 699 from another). Yet, regardless of the fact that I make the payments and am not in default on any account, I recently got a letter from one of my creditors (Citibank) saying that they are raising my interest rate to 29.99%. And I’m just left with the feelings of, “How and why would they do this to someone who is in good standing?” and, “How am I ever going to get out from under this?”

I have a personal friend who runs a successful credit score restoration business in the town where I live. She helps people with bad credit reports clean them up a little so they can get home loans, etc. I went to her for suggestions on how to proceed and she told me about a woman she recently met. She met this woman at a conference, and she runs a credit elimination business. My friend has decided to partner with this woman because she feels that a lot of her clients can use a service like this and is suggesting that I go to this woman to have my $19K eliminated, and swears that she is legit.

The process is what I’ve found to be called “novation”…I’m sure you obviously know about this already, but here is what they do:

—They have your debt assigned to them so they are “on the dotted line with you”.
—They then send in a minimum payment (for the regular minimum payment amount, in my case about $200 each) to the creditor with a letter offering new terms and if the creditor cashes the check, then they agree to the new terms. The new terms are that they cannot charge you any interest, the minimum payment is now $10, they can’t put any negatives on your credit report and if they ever have, they need to take them off.
—Since the creditor will (presumably) act as if they’re under the old contract, they send the next statement with a minimum payment higher than $10 and interest charged, maybe a late fee. They’ve now broken the new contract at least 3 times. So the processing company applies a financial penalty of anywhere from $500 to $2500 for each term violation, and continues to do so month after month until the financial penalties offset the debt. (Which they claim is the same thing as the creditor charging you a late fee…you’re paying a financial penalty for breaking the contract.)
—The processing company says that they will deal with all of the collection calls and letters as well as any threats of a lawsuit, as the creditor “has no legal leg to stand on”.

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It sounds too good to be true, but also to someone who isn’t a lawyer, it sounds plausible. I decided to do some research online and I’ve found a few articles that claim this is a scam, and also some articles that rebutt those scam claims with long lists of reasons why it does work.

For example, this article here by Gerri Detweiler.
And this rebuttal here.

I don’t know who to believe. Do you have any advice on the novation debt elimination programs?



Dear Melissa,

It’s all a f*^#ing scam, all of it, including the “credit restoration.”

You sound like a really nice person that is trying to do the right things, but these shortcuts will only lead to problems and may even be flatly illegal.

The contract substitution scam, also known as the novation scam sucks in a lot of victims. Click here to read more about novation.

The rebuttal article is double-speak and misinformation. It’s a good example of something that has enough truth in it to seem plausible but then, it’s not.

Here is the bottom line, you can’t unilaterally modify a contract, you can’t assign a debt that is not contractually assignable, and you can’t break a contract which is not mutually agreed to.

If you decide to pursue this debt assignment scam, you’ll lose a lot of money in the process and you’ll wind up being sued by your creditors for non-payment.

As far as the credit restoration goes, any person that uses a credit report where accurate but negative information has been removed is committing credit fraud and debt obtained fraudulently may not be discharged with bankruptcy if that person gets into trouble. Any business that charges a fee to alter an accurate credit report to reflect an alternative credit history is in violation of the Credit Repair Organizations Act.

If you are looking for a short cut out of debt, you can do it yourself for very little money and no risk. Just get a copy of your consolidated credit report. If you have any incorrect items in your three bureau credit report you can dispute the items using the information contained in your consolidated credit report.

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If you have any old open items you owe, pay them and if you don’t have current credit that you are using responsibly, get a major credit card and use it responsibly so current good credit is being reported about you and that will increase your credit score.

As far as your statement, “How and why would they do this to someone who is in good standing?”, referring to Citibank increasing your interest rate, the answer is simple, because they can. The irony here is that you agreed to it, all cardholders did. The cardholder agreement which both you and Citibank mutually agreed to gave them permission to change the rate. The real issue is not the interest rate, it’s the balance. As long as you are carrying a balance you will be charged interest if your interest rate is more than 0%. A card with a 29.99% rate, but where the balance is paid in full by the due date, is charged $0.

Save your money you’d pay to invest in these tricks and instead use it to pay down your debt.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

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Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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3 thoughts on “What’s Your Advice About Using Novation for Debt Elimination? – Melissa”

  1. Melissa,

    The novation does appear to be hogwash, but there are legitimate debt firms that will handle your debt for you. You will be required to surrender your cards and forgo the payments which will negatively impact your credit score until they charge off (usually within 6 months). You can settle for as little as 40%, and have the option of paying over 24 months. There’s no magic here, but going through a third party will generally allow you to pay over a longer period of time and settle for a lesser percentage. Also, the firm I work with will go an extra step by removing any collections from your credit report. While the original creditor has every right to report late payments, once they “charge off,” they do not. Creditors (not original debt holders) do not have the report you to the bureaus, but often they will. Those can legally come off.

  2. Hi Steve,
    Thanks for your prompt reply! And to answer your comment, yes…I am a nice person who is trying to do the right thing.

    I’ll be paying down my credit cards the old fashioned way. By sending them as much money as I can each month until they’re paid off. It’s not fair that the credit card companies can charge whatever they want in interest and fees…but after all, if I’m honest, I’m the one who got myself into this mess in the first place.

    As far as paying for the debt elimination program…if you have any room on your credit card (which I do) they suggest paying their fee with your card, which will then get eliminated so you don’t have to come out of pocket for any money. It struck me as fishy at first, and now I realize that even more than fishy, it’s a way to easily hook people into the scam by convincing them that it won’t really cost them anything at all.


    • Melissa,

      I get the point about wanting to repay your debt, I really do. But if you go bankrupt and get all the protections available to you under the law, including 0% interest, no lawsuits and no collection activity, there is nothing saying you can’t repay your creditors as you can afterwards. That’s what I did. And some creditors even sent me back my checks and asked me not to pay. LOL



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